Judge greenlights class-action suit accusing AMD of securities fraud

Plaintiffs claim chipmaker misled investors about supply-chain woes

A US federal judge has given the green light for a class-action lawsuit accusing AMD of securities fraud over the chipmaker's alleged failure to inform investors of problems with its manufacturing.

The suit, first filed in January 2014 and amended in June of that year, accuses AMD of willfully misleading investors by withholding information about low manufacturing yields for its "Llano" line of processors.

Llano, a codename that AMD was tossing around as far back as 2008, was the first generation of AMD's accelerated processing units (APUs), a marketing term the company uses to describe chips that combine CPU and GPU cores on a single die.

AMD's original plan was to get its APUs to market by 2009, but that idea quickly evaporated. It then said it would get them out by the end of 2010, but later pushed its target into the following year. Repeated delays meant retailers were eventually left stocking shelves with motherboards that could support Llano chips, but not the chips themselves.

In a 121-page complaint [PDF], attorneys representing Babak Hatamian and other AMD shareholders allege that the firm's execs never properly explained the nature of these delays to investors.

Instead, the suit claims, AMD execs gave repeated assurances that manufacturing problems at AMD's fabbing partner GlobalFoundries had been resolved, when in fact they had not.

"The yield problems that plagued [GlobalFoundries] in 2010 had not been resolved," the lawyers assert in court filings, "and by the time of the Llano launch in June 2011, AMD was significantly supply-constrained such that AMD was only able to ship whatever meager supply of Llano it was able to generate to its top-tier OEM customers, leaving AMD's important channel customers without any supply of Llano at all."

Famine to glut

By the time AMD was able to manufacture Llano in quantity, the suit claims, the market had moved on. Demand for Llano had shifted to newer processors, and AMD was left saddled with as much as $100m in unsold inventory.

"Despite these known problems," the suit alleges, "Defendants made statements throughout the Class Period that demand, particularly in the third party distribution channel (and in emerging markets where most channel sales occurred) was strong, that Llano was experiencing high customer adoption, and that sales were high."

Once the full truth was revealed, the plaintiffs claim, AMD's stock plummeted, shedding nearly 74 per cent of its value between the period of March 27 and October 18, 2012. The chipmaker's share price has yet to fully recover.

AMD had sought to have the plaintiffs' suit dismissed on grounds that its legal theory was insufficient, but in a ruling made public on Wednesday, US District Court Judge Yvonne Rogers of the Northern District of California denied that motion and ruled that the case would go forward.

"The Court does not reach this conclusion lightly," Judge Rogers wrote in a 19-page ruling [PDF]. "In so holding, the Court has considered possible non-culpable explanations for why defendants might have stated that yields were on track when they were later exposed as not having been."

The judge found, however, that such explanations were "relatively less persuasive" than the plaintiffs' allegations and that the evidence presented in the complaint met the legal requirements for a valid lawsuit under the Private Securities Litigation Reform Act of 1995.

What's more, court documents claim, "Lead Plaintiffs believe that substantial additional evidentiary support for the allegations herein exists and will continue to be revealed after Lead Plaintiffs have a reasonable opportunity for discovery."

The lawsuit seeks damages in an amount to be proven at trial, plus interest and court costs.

At press time, AMD had not responded to TheReg's request for comment. ®